Obama’s spending plan is investors’ cue

Commentary: President’s State of the Union speech is a road map

BOSTON (MarketWatch) — Wayne Gretzky was one of the world’s greatest hockey players partly because he knew where the puck was going. President Barack Obama this week gave ordinary folks a chance to become great investors by telling them where the money will be flowing.

In his State of the Union address, Obama said the U.S. will invest in electric cars, high-speed trains, high-speed Internet, clean energy, education, and biotechnology, to name but some of the big-picture items where investment opportunities will surface over the next two decades. Read more about Obama's State of the Union address.

Energy

One of the key areas of relevance to investors is energy, where formulating a policy that will reduce the country's dependence on foreign oil will involve more spending in alternative energy, nuclear and coal, said John Praveen, chief investment strategist of Prudential International Investments Advisers.

Would lower tax rates hurt?

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Heard on the Street's John Jannarone explains to Lee Hawkins how firms from Citigroup to Cooper Companies could suffer if President Obama's proposal to lower income taxes becomes law.

Jeremy Zirin, chief equity strategist at UBS Wealth Management Research, agreed, saying that “greater government subsidies for alternative-energy production could be a positive for solar, wind and hydro-generating companies.”

At the sector and industry level, Zirin said policy efforts to both reduce emissions of pollutants from existing fuel sources and promote energy efficiency should be positives for the industrials and technology sectors.

“Within industrials, large-scale investments by electric utilities to either retrofit coal-fired plants or shift production to cleaner gas or nuclear production should benefit engineering and construction companies,” Zirin said.

David Carter, chief investment officer of Lenox Advisors, suggested investors might want to approach investing in clean- and alternative-energy companies as if they were venture capitalists. There is a lot of technology and business risk associated with the companies in this sector, he said. “You should invest in ETFs because many [companies] will fail and one or two will succeed and we don’t know which ones will work out,” he said.

Morningstar Analyst Abraham Bailin noted in a recent report that Claymore Global Solar Energy
TAN, -2.02%
is the ETF vehicle of choice for investing in the solar-energy sector. In that same report, he also noted that PowerShares Global Clean Energy
PBD, -0.54%
and Market Vectors Global Alternative Energy
GEX, -1.92%
both provide “broader coverage of the entire alternative-energy space with a much higher level of market liquidity.”

Infrastructure

An increase in spending on infrastructure and science will not only improve the longer term competitiveness of the U.S. manufacturing industry but could also potentially boost the industrial sector in the near to medium term, said Prudential’s Praveen.

“Increased infrastructure spending in roads, railways and runways would be positives for construction-services companies and for the materials sector,” Praveen said.

Praveen also said any initiatives that stimulate the labor market, lead to improvement in job creation and reduce unemployment will be a positive for consumer spending and the consumer sectors.

Electric cars

At the moment, Carter isn’t so fond of investing in companies in the electric-car space. “The challenge in those industries right now is that they need government support,” he said.

“It’s wonderful that the support is there, but that government support could be temporary and could change,” he said. In other words, there’s uncertainty about the permanence of the government support and that means it’s hard for those making long-term investments to view this sector as one filled with opportunity.

A new survey backs up Carter’s sentiment. “Most Americans still aren’t likely to buy an electric car in the next 10 years,” according to a just-released Rasmussen Reports survey.

Two in three Americans say it’s not likely they will buy an electric car in the next decade, while 27% of adults say it’s at least somewhat likely they’ll buy one. In early August 2009, 40% said it was at least somewhat likely they’ll buy one, Rasmussen reported. According to the survey, “many Americans like the idea of developing clean, environmentally friendly sources of energy, but most aren’t willing to pay for it.” Read the report on Rasmussen Report’s site.

Health care

Emphasis on reducing health-care costs by improving electronic medical records benefits health-care information technology companies, said Zirin. What’s more, the life-science industry, such as manufacturers of testing equipment, should also benefit from regulations and increased government spending on food, air, water and drug safety, he said.

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